Serviced Apartments Investment in Dubai –Guide 2021

Thu, 14 Jan, 2021

 

If you are considering investing in Dubai’s real estate market, you will be pleased to know that there is a wide variety of equally beneficial options that you can choose from. This means that you can go for an investment option that perfectly suits your financial requirements, understanding, and personal interests. 

One of the said options is that of investing in serviced apartments – an option with its unique considerations and attractions. However, before turning to this sector for investment, one must be well-informed about the serviced-apartment industry in Dubai – and that is exactly what this blog will be covering. 

Dubai’s Hospitality Sector:

Alongside being the UAE’s travel and tourism hub, Dubai also presents numerous opportunities to businesspeople of various sectors. Unsurprisingly, expats from across the globe consistently turn to Dubai to improve their lifestyles and seek out new opportunities. An even larger number of people make temporary visits to the city, for purposes such as tourism and business dealings. Naturally, such people wish to enjoy the best possible accommodation during their time in Dubai. These are the reasons that Dubai’s hospitality sector remains vibrant across the year. 

A straightforward internet search will help you truly understand just how important it is to have accommodation options in Dubai. You will find that the city houses numerous hotels, ranging from economical ones right up to those that are highly lavish and extravagant. 

Dubai’s service providers and online booking options are always occupied due to the large quantities of people searching for accommodation across Dubai. While hotel rooms are indeed popular, the demand for serviced apartments also remains consistently high, since such apartments provide the ideal living opportunities for both expats and visitors. 

What Are Serviced Apartments?

Serviced apartments are an accommodation option, combining the features of residential apartments and a hotel room. Serviced apartments are spacious units, offering every amenity and luxury that should accompany any hotel apartment. To add to this, these apartments have layouts identical to those of regular apartments, comprising separate kitchens and bedrooms. 

Serviced apartments can vary in terms of features and facilities and can be used for longer stays as well as for shorter trips. 

Alongside tourists and travelers, serviced apartments are often preferred by expats with packed work schedules that demand maximum hotel and other luxury services. Every management company in-charge of a serviced apartment buildings will offer different services, but the one thing that is common is that those services will be bettered by those provided in a residential tower.

Reasons to Invest in Serviced Accommodation:

A lot of investors are investing in serviced apartments, since such apartments are equally appealing to both short and long term.

The increasing accommodation requirements – and the consequent increase in market demand – promise a regular, perpetual rental income flow for an investor. Since these apartments offer better services, they are generally priced higher compared to regular residential properties. 

Serviced Apartments v/ s Other Types of Properties:

Broadly, you can divide investment properties into three categories:

  • Residential.
  • Commercial. 
  • Serviced apartments. 

Each property type offers benefits such as rental returns and capital growth. 

If you are looking to make a property investment, you need to consider each of the three options along with their benefits and drawbacks, and come to a decision based on your specific investment requirements and objectives. As far as serviced apartments go, the mean returns that these properties offer make them the perfect kind of investment for any property investor. 

Benefits of Investing in Serviced Apartments:

The veterans of property investment and management will be well aware of the benefits that this sector brings for investors. However, since this guide is primarily targeted to those that are new to the property investment world, we will discuss some of the major benefits of investing in serviced apartments:

  1. High occupancy levels:

Like we mentioned, Dubai houses a large number of expats and tourists throughout the year, which means that serviced apartments in the country enjoy year-round demand. This high demand means that the rates of occupancy are high, thereby ensuring almost no difficulty in getting tenants for the serviced apartment sector.

You can rest assured that your serviced properties will remain occupied pretty much all twelve months of the years, and, even if they go vacant, it will only be for very short periods. Although this benefit is common to almost all serviced apartments throughout Dubai, you can perform further research to learn about the regions that have the maximum occupancy rates. 

  1. Greater rental prices:

Compared to regular residential properties, a serviced apartment usually comes with higher rents. This means that, while you will not have to pay a premium to purchase a serviced apartment, you can definitely expect greater rental returns than you would have received with any other type of investment property. Hence, if healthy rental returns is your primary objective, serviced apartments are the ideal investment choice for you. 

  1. Commercialized sector:

Yet another benefit of investing in serviced apartments in Dubai is that you can gain access to a strong network that is essential to attracting regular customers. Dubai’s tourists and expats are tech-savvy, preferring online portals to book their properties. Throw in the availability of competent local agents into the mix, and you can be assured that you will be able to find tenants on a consistent basis. 

Investing in Serviced Apartments for Newcomers:

Since property investments involve significant sums of money, one needs to carefully manage this kind of investment. Even though the risk levels are relatively lower, thorough research and informed decisions can go a long way in offering the best investment returns. If you are a newbie, you must first familiarize yourself with every aspect of investing in serviced apartments so that you can make the most out of the amount of money, time, and efforts that you are putting in. 

Financing options:

You need to start by learning about the various financing options that you can utilize. 

For instance, a mortgage loan will help you finance your serviced apartment while significantly reducing the investment burden, since you will only be required to pay an upfront amount of approximately 15-20% of your chosen property’s price. The rest of the amount can be returned according to convenient installment schedules. 

Moreover, since a serviced apartment is associated with greater rental returns, there is a high chance that your property will pay for itself. 

Lease types:

After investing in a serviced apartment, you can opt for one of the two lease agreement types, which are:

  1. Short-term lease:

If you are looking to offer a serviced apartment for a brief period, you should get into a short-term lease agreement. Tourists visiting Dubai for a short time will be willing to sign short-term lease agreements. This agreement type is feasible if you want to use your property primarily for yourself, and hence, would not like it to remain occupied at all times. 

  1. Long-term lease:

With long-term leases, your tenants will be using your property for longer periods, much like how it is with regular rental apartments. In return, you will be receiving consistent rental returns. Since serviced apartments in Dubai are always in demand, you can opt for a long-term lease if you are looking for continuous rental returns and do not have any intentions for personal property use. 

Things You Need to Consider:

If you have just stepped into the property investment world, there are several aspects regarding industry operations and maximizing benefits that you need to learn and understand. Some of those are:

  • The rental yields and property prices vary according to area. Hence, you must explore all your options and choose a region that best aligns with your interest. 
  • A property developer can also impact the property demand, and consequently, the rental returns. Hence, make sure that you invest in properties developed by DAMAC or any other leading developer. 
  • You will have to meet certain legal obligations, both at the time of purchasing the property and when you decide to enter into an agreement with a tenant. Dubai’s Land Department regulates every lease and purchase agreement, which is why you must be clear about every legal requirement before making the purchase. 
  • To mitigate the investment burden and risk, investors often turn to mortgage financing. Dubai’s banks and other financial institutions offer attractive rates that allow you to conveniently finance your chosen property. If you are looking for the best mortgage rates to fund your serviced apartment, you can seek assistance from DAMAC’s Mortgage Assist feature. 
  • While serviced apartments are associated with greater rental returns, they are also associated with lower capital gains in comparison to other kinds of properties. Hence, serviced apartments are the best choice for investors who are primarily concerned with maximizing their rental income. 

Final Word:

Investing in a serviced apartment can prove beneficial for every kind of investor. As long as you are smart in choosing your property, you can enjoy massive investment returns. With mortgage financing, you can make investments in properties that have far higher values than the amount of capital you possess. You can then pay these mortgages off through the healthy rental income that your serviced apartment will generate for you. 

FAQs:

Is a serviced apartment profitable?

Ans) A serviced apartment is immensely profitable as far as rental incomes go. This is mainly because the rent charged on serviced apartments is generally higher than the rent charged on other types of apartments. In addition, serviced apartments also have better occupancy rates. However, serviced apartments usually enjoy lower capital gains compared to residential properties, penthouses, villas, and townhouses. 

How is a serviced apartment different from a regular apartment?

Ans) Serviced apartments offer every feature that comes with regular apartments, including separate bedrooms, living rooms, balconies, and kitchens. In addition, serviced apartments are fully furnished and equipped with hotel luxuries and facilities such as cleaning and room service.

Such a hotel room features are what make serviced apartments different from regular apartments. From an investor’s point-of-view, another point of difference is that a serviced apartments produce healthier rental yields. 

Are serviced apartments considered commercial or residential?

Ans) An investor would see serviced apartments as commercial, since they purchase such an apartment to generate rental incomes. If you want to apply for mortgage loans to purchase a serviced apartment, you can opt for commercial mortgages since serviced apartments are capable of generating significant returns. 

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